Page last updated at 00:02 GMT, Wednesday, 18 February 2009

Is bail out cash reaching firms?

By Paul Burnell
BBC File On 4

The Government hoped that bailing out British banks would inject the cash the banks needed to keep the wheels of business lubricated.
Lloyds TSB branch
Has the bank bail out really helped businesses?

But companies, large and small, have told File On 4, the cash is not getting through to them and some believe that banks are now trying to squeeze ever more money out of businesses trying to weather the recession.

David Haythornthwaite runs a successful business making animal feed supplements at his state-of-the-art plant which has 120 employees in Lytham St Annes, Lancashire.

Last Spring he had an agreed 1.6m overdraft, for his business Tangerine Holdings, at 6.75% with his bank HBoS but his forecasts for the year ahead showed he would probably need 2m.

In a seasonal business he prepares his raw materials in January and February but these will not yield sales until March or April.

His bank offered an overdraft but at an 8% interest which he rejected as extortionate.

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"We decided to soldier on and try and manage our stock a little better," he told BBC File On 4.

"Subsequently - and this is the most annoying part - they just put our overdraft up to 8% anyway...no discussion about it or anything."

With New Year approaching and the economy showing a sharp slowdown he told the bank he would like to take up the overdraft he had been offered in May.

Cheque threat

"They denied that they had offered me the 2m overdraft and gave me two days to reduce my overdraft from 1.68m to 1.6m otherwise they would not honour any more cheques."

David Haythornthwaite
As soon as we hit a little bit of choppy water, the rug's pulled from under you and I think it's an absolute disgrace.
David Haythornthwaite

He added: "It was quite a threat and it puts you under extra pressure - we were under extreme pressure because we were trying to operate with a lot less money than we needed."

Fortunately, Mr Haythornthwaite was able to inject some cash into the business by selling personal assets.

"We run a very, very successful business. It's very profitable. Every single penny that this business has made over the last five years has been reinvested into this business.

"Last year we invested over 1m alone in brand new state-of-the-art manufacturing - we are a manufacturing business, something that is very rare today."

He added: "As soon as we hit a little bit of choppy water, the rug's pulled from under you and I think it's an absolute disgrace."

His sense of grievance has been heightened by another change in bank policy.

This centres on the value the bank places on stock that fills his warehouse, ready for shipment around the country and to the rest of the world, as collateral or surety against his company loans.

'Astounding decision'

To date the bank has, he said, valued the stock between 30 to 40% of its cost

"Now their rule of thumb is, that the value is zero - it's astounding. It's very valuable stock," he said.

Mr Haythornthwaite waived his right to customer confidentiality but HBoS would not be interviewed and issued a statement saying: "We do not discuss our customers' financial arrangements.

"We have been very supportive of Tangerine Holdings and remain completely committed to working with the Directors to help them achieve their objectives.

We're in a recession and what banks need to assure themselves is that the customer who wants to borrow will be in a position to repay
Eric Leenders, Executive Director of the British Bankers' Association

It is not just small businesses who have found a major change in policies from banks.

Seamus Keating, Finance Director of Logica plc, a major British IT company told File On 4 the company is still finding it expensive to borrow money despite the cut in interest rates.

'Increased risks'

Last year Logica was paying 1% on top of the Bank of England base rate, now it pays 3%.

"What is actually happening to most companies is that the benefit of the lower base rates is being swallowed up because the margin that they are paying to banks has increased," he said.

Eric Leenders, Executive Director of the British Bankers' Association maintains lending has actually increased by 9% to small businesses.

He admitted that credit was more expensive for businesses but added: "The risks that are involved have increased."

Mr Leenders told File On 4: "We're in a recession and what banks need to assure themselves is that the customer who wants to borrow will be in a position to repay and that means demonstrating through your business plan and your cash flow forecasts that you will be generating cash flow and profit."



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